What changed in this filing

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Item 1. Financial Statements

2023-08-14 compared with 2023-05-10 · 252 added, 188 removed, 500 unchanged (47% of the section changed)

7 unchanged sentences

Restricted cash

Accounts receivable, net of allowances for credit losses of $ 3,226 and $ 2,865 at March 31, 2023 and December 31, 2022, respectively

Accounts receivable, net of allowances for credit losses of $ 3,022 and $ 2,865 at June 30, 2023 and December 31, 2022, respectively

Prepaid expenses and other assets

26 unchanged sentences

5,000,000 shares authorized;

200,000 shares issued and outstanding at March 31, 2023 and December 31, 2022

200,000 shares issued and outstanding at June 30, 2023 and December 31, 2022

Stockholders' Equity

1 unchanged sentence

100,000,000 shares authorized;

9,870,927 and 9,742,236 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

9,870,927 and 9,742,236 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

9 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of sales:

7 unchanged sentences

Selling, general and administrative expenses

Loss from operations

Intangibles impairment

Income from operations

Loss from joint ventures

Other income (expense), net

Change in fair value of preferred stock derivative liability

Loss on debt extinguishment

Interest income

Interest expense

Loss before provision for (benefit from) income taxes

Provision for (benefit from) income taxes

Income before provision for income taxes

Provision for income taxes

Net loss attributable to non-controlling interests

Net loss attributable to JAKKS Pacific, Inc.

Net loss attributable to common stockholders

Loss per share - basic and diluted

Shares used in loss per share - basic and diluted

Comprehensive loss

Comprehensive loss attributable to JAKKS Pacific, Inc.

Net income attributable to Jakks Pacific, Inc.

Net income attributable to common stockholders

Earnings per share - basic

Shares used in earnings per share - basic

Earnings per share - diluted

Shares used in earnings per share - diluted

Comprehensive income

Comprehensive income attributable to JAKKS Pacific, Inc.

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

(In thousands)

Three Months Ended March 31, 2023

Three and Six Months Ended June 30, 2023

Pacific, Inc.

Stockholders'

Comprehensive

Stockholders'

Balance, December 31, 2022

4 unchanged sentences

Balance, March 31, 2023

Three Months Ended March 31, 2022

Share-based compensation expense

Preferred stock accrued dividends

Net income (loss)

Foreign currency translation adjustment

Balance, June 30, 2023

Three and Six Months Ended June 30, 2022

Pacific, Inc.

Stockholders'

Comprehensive

Stockholders'

Balance, December 31, 2021

4 unchanged sentences

Balance, March 31, 2022

Share-based compensation expense

Preferred stock accrued dividends

Net income (loss)

Foreign currency translation adjustment

Balance, June 30, 2022

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Provision for (recovery of) credit losses

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for credit losses

Depreciation and amortization

2 unchanged sentences

Share-based compensation expense

Gain on disposal of property and equipment

(Gain) loss on disposal of property and equipment

Loss on debt extinguishment

Intangibles impairment

Change in fair value of preferred stock derivative liability

9 unchanged sentences

Total adjustments

Net cash used in operating activities

Net cash provided by operating activities

Cash flows from investing activities

8 unchanged sentences

Net cash used in financing activities

Net decrease in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Effect of foreign currency translation

4 unchanged sentences

Cash paid for interest

As of March 31, 2023 and 2022, there was $ 2.6 million and $ 3.3 million, respectively, of property and equipment purchases included in accounts payable.

As of June 30, 2023 and 2022, there was $ 4.7 million and $ 4.4 million, respectively, of property and equipment purchases included in accounts payable.

See Notes 5, 6 and 9 for additional supplemental information to the condensed consolidated statements of cash flows.

3 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

June 30, 2023

Note 1 — Basis of Presentation

7 unchanged sentences

and its wholly-owned subsidiaries (collectively, “the Company”).

The condensed consolidated financial statements also include the accounts of JAKKS Meisheng Trading (Shanghai) Limited, a joint venture with Meisheng Cultural & Creative Corp., Ltd., and JAKKS Meisheng Animation (HK) Limited, a joint venture with Hong Kong Meisheng Cultural Company Limited.

The condensed consolidated financial statements also include the accounts of JAKKS Pacific Trading Limited, a joint venture with Meisheng Cultural & Creative Corp., Ltd., and JAKKS Meisheng Animation (HK) Limited, a joint venture with Hong Kong Meisheng Cultural Company Limited.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326):

12 unchanged sentences

In Q1 2023, the Company entered into amendments to its 2021 BSP Term Loan Agreement and its JPMorgan ABL Credit Agreement, which transitioned the interest reference rate on its term loan and revolving line of credit from LIBOR to the Secured Overnight Financing Rate (“SOFR”) (See Note 5 – Debt and Note 6 – Credit Facilities).

The Company is currently evaluating the impact that the adoption of this new guidance will have on its condensed consolidated financial statements.

The adoption of this new accounting standard did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40):

8 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

June 30, 2023

Note 2 — Business Segments, Geographic Data and Sales by Major Customers

8 unchanged sentences

Results are not necessarily those which would be achieved if each segment was an unaffiliated business enterprise.

Information by segment and a reconciliation to reported amounts for the three months ended March 31, 2023 and 2022 and as of March 31, 2023 and December 31, 2022 are as follows (in thousands):

Information by segment and a reconciliation to reported amounts for the three and six months ended June 30, 2023 and 2022 and as of June 30, 2023 and December 31, 2022 are as follows (in thousands):

Three Months Ended

Six Months Ended

Toys/Consumer Products

Three Months Ended

Income (Loss) from Operations

Six Months Ended

Income from Operations

Toys/Consumer Products

Three Months Ended

Six Months Ended

Depreciation and Amortization Expense

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

June 30, 2023

Net revenues are categorized based upon location of the customer, while long-lived assets are categorized based upon the location of the Company’s assets.

The following tables present information about the Company by geographic area as of March 31, 2023 and December 31, 2022 and for the three months ended March 31, 2023 and 2022 (in thousands):

The following tables present information about the Company by geographic area as of June 30, 2023 and December 31, 2022 and for the three and six months ended June 30, 2023 and 2022 (in thousands):

Long-lived Assets

2 unchanged sentences

Three Months Ended

Six Months Ended

Net Sales by Customer Area

4 unchanged sentences

Major Customers

Net sales to major customers for the three months ended March 31, 2023 and 2022 were as follows (in thousands, except for percentages):

Three Months Ended March 31,

Net sales to major customers for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands, except for percentages):

Three Months Ended June 30,

Six Months Ended June 30,

No other customer accounted for more than 10% of the Company's total net sales.

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

June 30, 2023

Note 3 — Inventory

2 unchanged sentences

Finished goods

As of March 31, 2023 and December 31, 2022, the inventory obsolescence reserve was $ 9.8 million and $ 9.0 million, respectively.

As of June 30, 2023 and December 31, 2022, the inventory obsolescence reserve was $ 10.6 million and $ 9.0 million, respectively.

Note 4 — Revenue Recognition and Reserve for Sales Returns and Allowances

22 unchanged sentences

Shipping and handling activities are considered part of the Company’s obligation to transfer the products and therefore are recorded as direct selling expenses, as incurred.

For the three months ended March 31, 2023 and 2022, shipping and handling costs were $ 1.9 million and $ 1.5 million, respectively.

The Company’s reserve for sales returns and allowances amounted to $ 41.1 million as of March 31, 2023, compared to $ 51.9 million as of December 31, 2022.

For the three and six months ended June 30, 2023, shipping and handling costs were $ 1.7 million and $ 3.6 million, respectively.

For the three and six months ended June 30, 2022, shipping and handling costs were $ 2.2 million and $ 3.7 million, respectively.

The Company’s reserve for sales returns and allowances amounted to $ 37.9 million as of June 30, 2023, compared to $ 51.9 million as of December 31, 2022.

JAKKS PACIFIC, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

June 30, 2023

Note 5 — Debt

Term loan consists of the following (in thousands):

March 31, 2023

June 30, 2023

December 31, 2022

Debt Discount/

2021 BSP Term Loan

24 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

On June 27, 2022, as permitted by the terms within the 2021 BSP Term Loan Agreement, the Company made a voluntary fee-free $ 10.0 million prepayment towards the outstanding principal amount of the 2021 BSP Term Loan.

On September 28, 2022, as permitted by the terms within the 2021 BSP Term Loan Agreement, the Company made a voluntary $ 17.5 million prepayment towards the outstanding principal amount of the 2021 BSP Term Loan and incurred a $ 0.5 million prepayment penalty.

On January 3, 2023, as permitted by the terms within the 2021 BSP Term Loan Agreement, the Company made a voluntary $ 15.0 million prepayment towards the outstanding principal amount of the 2021 BSP Term Loan and incurred a $ 0.2 million prepayment penalty.

On March 3, 2023, as required by the terms within the 2021 BSP Term Loan Agreement under the Excess Cash Flow (“ECF”) Sweep provision, the Company made a mandatory $ 23.1 million payment towards the outstanding principal amount of the 2021 BSP Term Loan.

June 30, 2023

The 2021 BSP Term Loan Agreement contains events of default that are customary for a facility of this nature, including (subject in certain cases to grace periods and thresholds) nonpayment of principal, nonpayment of interest, fees or other amounts, material inaccuracy of representations and warranties, violation of covenants, cross-default to certain other existing indebtedness, bankruptcy or insolvency events, certain judgment defaults and a change of control as specified in the 2021 BSP Term Loan Agreement.

1 unchanged sentence

The obligations under the 2021 BSP Term Loan Agreement are guaranteed by the Company, the subsidiary borrowers thereunder and certain of the other existing and future direct and indirect subsidiaries of the Company and are secured by substantially all of the assets of the Company, the subsidiary borrowers thereunder and such other subsidiary guarantors, in each case, subject to certain exceptions and permitted liens and subject to the priority lien granted under the JPMorgan ABL Credit Agreement (see Note 6 – Credit Facility).

The agent and Sole Lead Arranger under the 2021 BSP Term Loan are affiliates of an affiliate of the Company, which affiliate, at the time of refinancing, owned common stock, and the 3.25 % convertible senior notes due 2023 of the Company as well as the Company’s outstanding Series A Preferred Stock.

Amortization expense classified as interest expense related to the $ 0.3 million of debt issuance costs associated with the issuance of the 2021 BSP Term Loan was $ 26,784 for the three months ended March 31, 2023, and $ 43,584 for the three months ended March 31, 2022.

Amortization expense classified as interest expense related to the $ 0.7 million debt discount associated with the issuance of the 2021 BSP Term Loan was $ 57,867 for the three months ended March 31, 2023, and $ 94,164 for the three months ended March 31, 2022.

The fair value of the Company’s 2021 BSP Term Loan is considered Level 3 fair value (see Note 15 – Fair Value Measurements for further discussion of the fair value hierarchy) and are measured using the discounted future cash flow method.

2 unchanged sentences

The Company believes that this is the best information available for use in the fair value measurement.

The estimated fair value of the 2021 BSP Term Loan was $ 31.0 million and $ 69.3 million as of March 31, 2023 and December 31, 2022, respectively, compared to a carrying value of $ 30.2 million and $ 68.9 million as of March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023, the Company was in compliance with the financial covenants under the 2021 BSP Term Loan Agreement.

The estimated fair value of the 2021 BSP Term Loan was $ 69.3 million as of December 31, 2022 compared to a carrying value of $ 68.9 million as of December 31, 2022.

On June 5, 2023, the Company paid in full the 2021 BSP Term Loan and terminated the 2021 BSP Term Loan Agreement by making a $ 30.2 million prepayment towards the outstanding principal amount.

Additionally, the Company made a $ 0.4 million payment towards the outstanding accrued interest, and a $ 0.3 million payment for the prepayment penalty and other related fees.

In connection with this transaction, the Company recognized a loss on debt extinguishment of $ 1.0 million on its condensed consolidated statements of operations.

JAKKS PACIFIC, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

June 30, 2023

Note 6 — Credit Facilities

5 unchanged sentences

The JPMorgan ABL Facility matures in June 2026.

As of March 31, 2023, the weighted average interest rate on the credit facility with JPMorgan Chase Bank was nil .

As of June 30, 2023, the weighted average interest rate on the credit facility with JPMorgan Chase Bank was 6.8 %.

In March 2023, the Company entered into a first amendment for its JPMorgan ABL Credit Agreement, which transitioned the interest reference rate on its JPMorgan ABL Facility from LIBOR to the Secured Overnight Financing Rate (“SOFR”).

6 unchanged sentences

The obligations under the JPMorgan ABL Credit Agreement are guaranteed by the Company, the subsidiary borrowers thereunder and certain of the other existing and future direct and indirect subsidiaries of the Company and are secured by substantially all of the assets of the Company, the subsidiary borrowers thereunder and such other subsidiary guarantors, in each case, subject to certain exceptions and permitted liens.

As of March 31, 2023, the amount of outstanding borrowings was nil and the total excess borrowing availability was $ 41.4 million.

As of March 31, 2023, off-balance sheet arrangements include letters of credit issued by JPMorgan of $ 17.2 million.

Amortization expense classified as interest expense related to the $ 1.6 million of debt issuance costs associated with the transaction that closed on June 2, 2021 (i.e., JPMorgan ABL Credit Agreement) was $ 0.1 million for the three months ended March 31, 2023 and March 31, 2022.

As of March 31, 2023, the Company was in compliance with the financial covenants under the JPMorgan ABL Credit Agreement.

As of June 30, 2023, the amount of outstanding borrowings was nil and the total excess borrowing availability was $ 54.9 million.

As of June 30, 2023, off-balance sheet arrangements include letters of credit issued by JPMorgan of $ 9.3 million.

Amortization expense classified as interest expense related to the $ 1.6 million of debt issuance costs associated with the transaction that closed on June 2, 2021 (i.e., JPMorgan ABL Credit Agreement) was $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2023, respectively.

As of June 30, 2023, the Company was in compliance with the financial covenants under the JPMorgan ABL Credit Agreement.

JAKKS PACIFIC, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

June 30, 2023

Note 7 — Income Taxes

The Company’s income tax benefit of $ 1.4 million for the three months ended March 31, 2023, reflects an effective tax rate of 20.6 %.

The Company’s income tax expense of $ 0.4 million for the three months ended March 31, 2022, reflects an effective tax rate of ( 11.9 )%.

The tax benefit for the three months ended March 31, 2023, primarily relates to discrete items and the tax benefit related to the overall worldwide loss (i.e.

federal, state, and foreign).

The tax expense for the three months ended March 31, 2022 primarily relates to foreign income taxes and discrete items.

Note 8 — Loss Per Share

The following table is a reconciliation of the weighted average shares used in the computation of loss per share for the periods presented (in thousands, except per share data):

The Company’s income tax expense of $ 1.5 million for the three months ended June 30, 2023 reflects an effective tax rate of 19.3 %.

The Company’s income tax expense of $ 1.3 million for the three months ended June 30, 2022 reflects an effective tax rate of 4.8 %.

The tax expense for the three months ended June 30, 2023 primarily relates to federal, state and foreign income taxes and discrete items.

The tax expense for the three months ended June 30, 2022 primarily relates to foreign income taxes and discrete items.

The Company’s income tax expense of $ 0.1 million for the six months ended June 30, 2023 reflects an effective tax rate of 9.9 %.

The Company’s income tax expense of $ 1.8 million for the six months ended June 30, 2022 reflects an effective tax rate of 7.3 %.

The majority of the tax expense for the six months ended June 30, 2023 primarily relates to federal, state and foreign income taxes offset by discrete items.

The majority of the tax expense for the six months ended June 30, 2022 relates to foreign income taxes and discrete items.

Note 8 — Earnings Per Share

The following table is a reconciliation of the weighted average shares used in the computation of earnings per share for the periods presented (in thousands, except per share data):

Three Months Ended

Loss per share - basic and diluted

Six Months Ended

Earnings per share - basic and diluted

Net loss attributable to non-controlling interests

Net loss attributable to JAKKS Pacific, Inc.

Net income attributable to JAKKS Pacific, Inc.

Preferred stock dividend*

Net loss attributable to common stockholders **

Weighted average common shares outstanding - basic and diluted

Loss per share available to common stockholder - basic and diluted

Net income attributable to common stockholders **

Weighed average common shares outstanding - basic

Earnings per share available to common stockholder- basic

Weighed average common shares outstanding - diluted

Earnings per share available to common stockholder- diluted

* The 200,000 shares issued and outstanding are non-participating.

** Net loss attributable to common stockholders was computed by deducting preferred dividends of $ 0.4 million and $ 0.3 million for the three months ended March 31, 2023 and 2022, respectively.

Basic loss per share is calculated using the weighted average number of common shares outstanding during the period.

Diluted loss per share is calculated using the weighted average number of common shares and common share equivalents outstanding during the period (which consist of restricted stock units to the extent they are dilutive).

Potentially dilutive restricted stock units of 494,106 and 310,907 for the three months ended March 31, 2023 and 2022, respectively, were excluded from the computation of diluted loss per share since they would have been anti-dilutive.

** Net income attributable to common stockholders was computed by deducting preferred dividends of $ 0.4 million and $ 0.7 million for the three and six months ended June 30, 2023, respectively.

Net income attributable to common stockholders was computed by deducting preferred dividends of $ 0.4 million and $ 0.7 million for the three and six months ended June 30, 2022, respectively.

Basic earnings per share is calculated using the weighted average number of common shares outstanding during the period.

Diluted earnings per share is calculated using the weighted average number of common shares and common share equivalents outstanding during the period (which consist of restricted stock units to the extent they are dilutive).

No restricted stock units were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2023 and 2022.

Note 9 — Common Stock and Preferred Stock

All issuances of common stock, including those issued pursuant to restricted stock or unit grants, are issued from the Company’s authorized but not issued and outstanding shares.

During 2022, certain employees, including two executive officers, surrendered an aggregate of 113,162 shares of restricted stock units for $ 1.4 million to cover income taxes due on the vesting of restricted shares.

Additionally, an aggregate of 149,238 shares of restricted stock granted in 2019 with a value of approximately $ 2.2 million was forfeited during 2022.

During 2023, certain employees, including two executive officers, surrendered an aggregate of 69,358 shares of restricted stock for $ 1.2 million to cover income taxes due on the vesting of restricted shares.

Additionally, an aggregate of 2,206 shares of restricted stock granted in 2019 with the value of approximately $ 41,000 was forfeited during 2023.

No dividend was declared or paid in the three months ended March 31, 2023 and 2022.

JAKKS PACIFIC, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

June 30, 2023

During 2022, certain employees, including three executive officers, surrendered an aggregate of 113,162 shares of restricted stock units for $ 1.4 million to cover income taxes due on the vesting of restricted shares.

Additionally, an aggregate of 149,238 shares of restricted stock granted in 2019 with a value of approximately $ 2.2 million was forfeited during 2022.

Additionally, an aggregate of 2,206 shares of restricted stock granted in 2019 with the value of approximately $ 41,000 was forfeited during 2023.

No dividend was declared or paid in the three months ended June 30, 2023 and 2022.

At the Market Offering

1 unchanged sentence

Riley, as agent pursuant to which the Company may, from time to time, sell shares of its common stock, up to $ 75 million of common stock, in one or more offerings in amounts, prices and at terms that the Company will determine at the time of the offering.

As of March 31, 2023, the Company has not sold any shares of common stock under the ATM Agreement.

As of June 30, 2023, the Company has not sold any shares of common stock under the ATM Agreement.

The Company has on file with the SEC an effective registration statement pursuant to which it may issue, from time to time, up to an additional $ 75 million of securities consisting of, or any combination of, common stock, preferred stock, debt securities, warrants, rights and/or units, in one or more offerings in amounts, prices and at terms that the Company will determine at the time of the offering.

As of March 31, 2023, the Company has not sold any securities pursuant to its shelf registration statement.

As of June 30, 2023, the Company has not sold any securities pursuant to its shelf registration statement.

Redeemable Preferred Stock

1 unchanged sentence

In connection with the Recapitalization Transaction, the Company issued 200,000 shares of Series A Senior Preferred Stock (the “Series A Preferred Stock”), $ 0.001 par value per share, to the Investor Parties (the “New Preferred Equity”).

As of March 31, 2023 and December 31, 2022, 200,000 shares of Series A Preferred Stock were outstanding.

As of June 30, 2023 and December 31, 2022, 200,000 shares of Series A Preferred Stock were outstanding.

Each share of Series A Preferred Stock has an initial value of $ 100 per share, which is automatically increased for any accrued and unpaid dividends (the “Accreted Value”).

1 unchanged sentence

No cash dividends have been declared or paid.

For the three months ended March 31, 2023 and 2022, the Company recorded $ 0.4 million and $ 0.3 million, respectively, of preferred stock dividends as an increase in the value of the Series A Preferred Stock.

For the three and six months ended June 30, 2023, the Company recorded $ 0.4 million and $ 0.7 million, respectively, of preferred stock dividends as an increase in the value of the Series A Preferred Stock.

For the three and six months ended June 30, 2022, the Company recorded $ 0.4 million and $ 0.7 million of preferred stock dividends as an increase in the value of the Series A Preferred Stock, respectively.

The Series A Preferred Stock has no stated maturity, however, the Company has the right to redeem all or a portion of the Series A Preferred Stock at its Liquidation Preference (as defined below) at any time after payment in full of the 2019 Recap Term Loan.

In addition, upon the occurrence of certain change of control type events, holders of the Series A Preferred Stock are entitled to receive an amount (the “Liquidation Preference”), in preference to holders of Common Stock or other junior stock, equal to (i) 20 % of the Accreted Value in the case of a certain specified transaction, or (ii) otherwise, 150 % of the Accreted value, plus any accrued and unpaid dividends.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

The Company has the right, but is not required, to repurchase all or a portion of the Series A Preferred Stock at its Liquidation Preference at any time after payment in full of the 2019 Recap Term Loan.

5 unchanged sentences

In 2022, an agreement was reached with the preferred shareholders to eliminate their ability to elect members to the Company’s Board of Directors on a going-forward basis.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

The Series A Preferred Stock redemption amount is contingent upon certain events with no stated redemption date as of the reporting date, although may become redeemable in the future.

11 unchanged sentences

Accordingly, these two embedded derivatives are accounted for separately from the Series A Preferred Stock at fair value.

As of March 31, 2023, the Series A Preferred Stock is recorded in temporary equity at the amount of accrued, but unpaid dividends of $ 4.9 million, and the redemption provision, as a bifurcated derivative, is recorded as a long-term liability with an estimated value of $ 21.8 million.

As of June 30, 2023, the Series A Preferred Stock is recorded in temporary equity at the amount of accrued, but unpaid dividends of $ 5.2 million, and the redemption provision, as a bifurcated derivative, is recorded as a long-term liability with an estimated value of $ 27.8 million.

As of December 31, 2022, the Series A Preferred Stock is recorded in temporary equity at the amount of accrued, but unpaid dividends of $ 4.5 million, and the redemption provision, as a bifurcated derivative, is recorded as a long-term liability with an estimated value of $ 21.9 million.

As of March 31, 2023, the Series A Preferred Stock had a carrying value of $ 24.9 million and a liquidation value of $ 37.3 million.

As of June 30, 2023, the Series A Preferred Stock had a carrying value of $ 25.2 million and a liquidation value of $ 37.8 million.

As of December 31, 2022, the Series A Preferred Stock had a carrying value of $ 24.5 million and a liquidation value of $ 36.7 million.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

The following table provides a reconciliation of the beginning and ending balances of the Series A Preferred Stock, which is recorded in temporary equity:

2 unchanged sentences

Balance, March 31,

Preferred stock accrued dividends

Balance, June 30,

Note 10 — Joint Ventures

2 unchanged sentences

The Company owns fifty-one percent of the joint venture and consolidates the joint venture since control rests with the Company.

The non-controlling interest’s share of the loss was $ 5,000 and $ 0.1 million for the three months ended March 31, 2023 and 2022, respectively.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

The non-controlling interest’s share of the loss was $ 0.3 million each for the three and six months ended June 30, 2023.

The non-controlling interest’s share of the loss was $ 0.4 million and $ 0.5 million for the three and six months ended June 30, 2022, respectively.

In October 2016, the Company entered into a joint venture with Hong Kong Meisheng Cultural Company Limited ("Meisheng"), a Hong Kong-based subsidiary of Meisheng Culture & Creative Corp., for the purpose of creating and developing original, multiplatform content for children including new short-form series and original shows.

3 unchanged sentences

The results of operations of the joint venture are consolidated with the Company's results.

The non-controlling interest’s share of the income (loss) from the joint venture for the three months ended March 31, 2023 and 2022 was nil .

The non-controlling interest’s share of the loss from the joint venture for the three months ended June 30, 2023 and 2022 was nil .

Note 11 — Goodwill

1 unchanged sentence

Goodwill impairment exists when the estimated fair value of goodwill is less than its carrying value.

For the three months ended March 31, 2023, there were no events or circumstances that indicated that an impairment loss may have been incurred.

Note 12 — Comprehensive Loss

The table below presents the components of the Company’s comprehensive loss for the three months ended March 31, 2023 and 2022 (in thousands):

For the three and six months ended June 30, 2023, there were no events or circumstances that indicated that an impairment loss may have been incurred.

Based on the Company’s April 1 annual assessment, it determined that the fair values of its reporting units were not less than the carrying amounts.

No goodwill impairment was determined to have occurred for the six months ended June 30, 2023 and June 30, 2022.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

Note 12 — Comprehensive Income

The table below presents the components of the Company’s comprehensive income for the three and six months ended June 30, 2023 and 2022 (in thousands):

Three Months Ended

Other comprehensive income (loss):

Six Months Ended

Other comprehensive income:

Foreign currency translation adjustment

Comprehensive loss

Comprehensive income

Comprehensive loss attributable to non-controlling interests

Comprehensive loss attributable to JAKKS Pacific, Inc.

Comprehensive income attributable to JAKKS Pacific, Inc.

Note 13 — Litigation and Contingencies

8 unchanged sentences

Other than certain liabilities recorded in the normal course of business related to royalty payments due to the Company's licensors, no liabilities have been recorded for indemnifications and/or other commitments.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

Note 14 — Share-Based Payments

2 unchanged sentences

Shares for the restricted stock units are not issued until they vest.

The following table summarizes the total share-based compensation expense recognized for the three months ended March 31, 2023 and 2022 (in thousands)

The following table summarizes the total share-based compensation expense recognized for the three and six months ended June 30, 2023 and 2022 (in thousands)

Three Months Ended

Six Months Ended

Share-based compensation expense

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

Restricted Stock Units

Restricted stock unit activity (including those with performance-based vesting criteria) for the three months ended March 31, 2023 is summarized as follows:

Restricted stock unit activity (including those with performance-based vesting criteria) for the six months ended June 30, 2023 is summarized as follows:

Restricted Stock Units

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Outstanding, December 31, 2022

Outstanding, March 31, 2023

As of March 31, 2023, there was $ 17.4 million of total unrecognized compensation cost related to non-vested restricted stock units, which is expected to be recognized over a weighted-average period of 2.5 years.

Outstanding, June 30, 2023

As of June 30, 2023, there was $ 15.3 million of total unrecognized compensation cost related to non-vested restricted stock units, which is expected to be recognized over a weighted-average period of 2.3 years.

Note 15 — Fair Value Measurements

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Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

In instances where the determination of the fair value measurement is based upon inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based upon the lowest level input that is significant to the fair value measurement in its entirety.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

JAKKS PACIFIC, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following tables summarize the Company's financial liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 (in thousands):

June 30, 2023

The following tables summarize the Company's financial liabilities measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022 (in thousands):

Fair Value Measurements

as of March 31, 2023

as of June 30, 2023

Carrying Amount as of

June 30, 2023

Preferred stock derivative liability

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as of December 31, 2022

Carrying Amount as of

December 31, 2022

Preferred stock derivative liability

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Change in fair value

Balance, March 31,

Balance, June 30,

The Company’s Series A Preferred derivative liability is classified within Level 3 of the fair value hierarchy because unobservable inputs were used in estimating the fair value.

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In subsequent periods, the derivative liability is accounted for at fair value, with changes in fair value recognized as other income (expense) on the Company's condensed consolidated statements of operations.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

The following table provides quantitative information of liabilities measured at fair value and the significant unobservable inputs (Level 3), the range of the significant unobservable inputs, and the valuation techniques.

As of March 31, 2023

As of June 30, 2023

(Weighted Average)

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Change-in-control probability assumptions

10 % to 40 % ( 27.2 %)

Timing of change-in-control assumptions

1 to 10 years ( 4.16 years)

1 to 10 years

Discount Rate

18.16 % to 18.91 % ( 18.59 %)

Implied yield*

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

Market yield*

As of December 31, 2022

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Change-in-control probability assumptions

10 % to 40 % ( 27.3 %)

Timing of change-in-control assumptions

1 to 10 years ( 4.19 years)

1 to 10 years

Discount Rate

17.48 % to 18.23 % ( 17.70 %)

Implied yield**

*Represents the hypothetical market yield

** Represents the implied yield of the 2021 BSP Term Loan

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Xiaoqiang Zhao) for election to the Company’s board of directors.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

Meisheng also serves as a significant manufacturer of the Company.

For the three months ended March 31, 2023 and 2022, the Company made inventory-related payments to Meisheng of approximately $ 9.3 million and $ 15.5 million, respectively.

As of March 31, 2023 and December 31, 2022, amounts due to Meisheng for inventory received by the Company, but not paid totaled $ 8.0 million and $ 9.8 million, respectively.

For the three and six months ended June 30, 2023, the Company made inventory-related payments to Meisheng of approximately $ 19.1 million and $ 28.4 million, respectively.

For the three and six months ended June 30, 2022, the Company made inventory-related payments to Meisheng of approximately $ 50.2 million and $ 65.7 million, respectively.

As of June 30, 2023 and December 31, 2022, amounts due to Meisheng for inventory received by the Company, but not paid totaled $ 18.6 million and $ 9.8 million, respectively.

A director of the Company is a director at Benefit Street Partners, who owns 145,788 shares of the Series A Preferred Stock (see Note 9 – Common Stock and Preferred Stock).

As of March 31, 2023, a division of Benefit Street Partners held $ 30.2 million in principal amount of the 2021 BSP Term Loan (see Note 5 - Debt).

Note 17 — Prepaid Expenses and Other Assets

Prepaid expenses and other assets as of March 31,2023 and December 31, 2022 consist of the following (in thousands):

Royalty advances

Prepaid expenses and other assets as of June 30,2023 and December 31, 2022 consist of the following (in thousands):

Prepaid expenses

Royalty advances

Income tax receivable

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Critical Accounting Estimates

Our critical accounting policies and estimates are included in the 2022 Annual Report on Form 10-K and did not materially change during the first three months of 2023.

Our critical accounting policies and estimates are included in the 2022 Annual Report on Form 10-K and did not materially change during the first six months of 2023.

New Accounting Pronouncements

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The following unaudited table sets forth, for the periods indicated, certain statement of income data as a percentage of net sales:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of sales:

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Selling, general and administrative expenses

Loss from operations

Intangibles impairment

Income from operations

Loss from joint ventures

Other income (expense), net

Change in fair value of preferred stock derivative liability

Loss on debt extinguishment

Interest income

Interest expense

Loss before provision for (benefit from) income taxes

Provision for (benefit from) income taxes

Net loss attributable to non-controlling interests

Net loss attributable to JAKKS Pacific, Inc.

The following unaudited table summarizes, for the periods indicated, certain statements of operations data by segment (in thousands):

Three Months Ended March 31,

Income before provision for income taxes

Provision for income taxes

Loss attributable to non-controlling interests

Net income attributable to JAKKS Pacific, Inc.

The following unaudited table sets forth, for the periods indicated, certain statements of operations data by segment (in thousands):

Three Months Ended

Six Months Ended

Toys/Consumer Products

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Toys/Consumer Products

Comparison of the Three Months Ended March 31, 2023 and 2022

Comparison of the Three Months Ended June 30, 2023 and 2022

Toys/Consumer Products.

Net sales of our Toys/Consumer Products segment were $97.9 million for the three months ended March 31, 2023 compared to $111.1 million for the prior year period, representing a decrease of $13.2 million, or 11.9%.

The decrease was primarily driven by lower sales in North America, which was down $14.6 million, or 15.8%.

Net sales of our Costumes segment were $9.6 million for the three months ended March 31, 2023 compared to $9.8 million for the prior year period, representing a decrease of $0.2 million, or 2.0%.

Net sales of our Toys/Consumer Products segment were $117.9 million for the three months ended June 30, 2023 compared to $148.9 million for the prior year period, representing a decrease of $31.0 million, or 20.8%.

The decrease was primarily driven by lower sales in North America, which were down $33.3 million, or 25.7%, as well as, customers placing FOB orders earlier in the prior year to get ahead of supply chain issues experienced a year ago.

Now that the supply chain has returned to historical normal patterns, retailers have moved back to the pre-pandemic ordering patterns.

Net sales of our Costumes segment were $49.0 million for the three months ended June 30, 2023 compared to $71.6 million for the prior year period, representing a decrease of $22.6 million, or 31.6%.

The decrease in net sales was primarily related to earlier customer shipments versus a year ago to get ahead of supply chain issues experienced a year ago.

Cost of Sales

Toys/Consumer Products.

Cost of sales of our Toys/Consumer Products segment was $68.7 million, or 70.2% of related net sales for the three months ended March 31, 2023 compared to $83.0 million, or 74.7% of related net sales for the prior year period, representing a decrease of $14.3 million, or 17.2%.

Cost of sales of our Toys/Consumer Products segment was $77.6 million, or 65.8% of related net sales for the three months ended June 30, 2023 compared to $105.7 million, or 71.0% of related net sales for the prior year period, representing a decrease of $28.1 million, or 26.6%.

The decrease in dollars is related to lower overall sales.

The decrease as a percentage of net sales, year over year, is primarily due to lower freight costs.

Cost of sales of our Costumes segment was $7.4 million, or 77.1% of related net sales for the three months ended March 31, 2023, compared to $8.0 million, or 81.6% of related net sales for the prior year period, representing a decrease in dollars of $0.6 million, or 7.5%.

The decrease is related to lower product costs.

Cost of sales of our Costumes segment was $38.1 million, or 77.8% of related net sales for the three months ended June 30, 2023, compared to $53.8 million, or 75.1% of related net sales for the prior year period, representing a decrease in dollars of $15.7 million, or 29.2%.

The decrease in dollars is related to lower overall sales.

The increase as a percentage of net sales was driven by a higher average royalty rate.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $35.8 million for the three months ended March 31, 2023 compared to $30.7 million for the prior year period constituting 33.3% and 25.4% of net sales, respectively.

Selling, general and administrative expenses were primarily due to higher warehouse and storage costs.

Selling, general and administrative expenses were $34.8 million for the three months ended June 30, 2023 compared to $36.9 million for the prior year period constituting 20.8% and 16.8% of net sales, respectively.

The decrease in selling, general and administrative expenses as a percentage of net sales was primarily due to lower sales a year ago.

Interest Expense

Interest expense was $3.0 million for the three months ended March 31, 2023, as compared to $2.2 million in the prior year period.

During the three months ended March 31, 2023, we incurred interest expense of $2.5 million related to our 2021 BSP Term Loan, $0.1 million related to our revolving credit facility and $0.4 million related to other borrowing costs.

During the three months ended March 31, 2022, we incurred interest expense of $2.0 million related to our 2021 BSP Term Loan and $0.2 million related to our revolving credit facility.

Interest expense was $1.3 million for the three months ended June 30, 2023, as compared to $2.3 million in the prior year period.

During the three months ended June 30, 2023, we incurred interest expense of $0.7 million related to our 2021 BSP Term Loan, $0.3 million related to our revolving credit facility and $0.3 million related to other borrowing costs.

During the three months ended June 30, 2022, we incurred interest expense of $2.0 million related to our 2021 BSP Term Loan and $0.3 million related to our revolving credit facility.

Provision For (Benefit From) Income Taxes

Our income tax benefit, which includes federal, state and foreign income taxes and discrete items, was $1.4 million, or an effective tax rate of 20.6%, for the three months ended March 31, 2023.

Our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $1.5 million, or an effective tax rate of 19.3%, for the three months ended June 30, 2023.

During the comparable period in 2022, our income tax expense was $1.3 million, or an effective tax rate of 4.8%.

The effective tax rate increased primarily due to the expectation of taxes owed in higher tax jurisdictions.

Comparison of the Six Months Ended June 30, 2023 and 2022

Toys/Consumer Products.

Net sales of our Toys/Consumer Products segment were $215.8 million for the six months ended June 30, 2023 compared to $260.0 million for the prior year period, representing a decrease of $44.2 million, or 17.0%.

The decrease in net sales was primarily related to customers placing FOB orders earlier in the prior year in order to get ahead of supply chain issues experienced a year ago.

Now that the supply chain has returned to historical normal patterns, retailers have moved back to the pre-pandemic ordering patterns.

Net sales of our Costumes segment were $58.6 million for the six months ended June 30, 2023 compared to $81.3 million for the prior year period, representing a decrease of $22.7 million, or 27.9%.

Similar to Toys/Consumer Products, the decrease in net sales was primarily related to earlier customer shipments versus a year ago to get ahead of supply chain issues experienced a year ago.

Cost of Sales

Toys/Consumer Products.

Cost of sales of our Toys/Consumer Products segment was $146.3 million, or 67.8% of related net sales for the six months ended June 30, 2023 compared to $188.7 million, or 72.6% of related net sales for the prior year period, representing a decrease of $42.4 million, or 22.5%.

The decrease in dollars is related to lower overall sales.

The decrease as a percentage of net sales, year over year, is due to lower freight costs.

Cost of sales of our Costumes segment was $45.5 million, or 77.6% of related net sales for the six months ended June 30, 2023, compared to $61.8 million, or 76.0% of related net sales for the prior year period, representing a decrease in dollars of $16.3 million, or 26.4%.

The decrease in dollars is related to lower overall sales.

The increase as a percentage of net sales was driven by a higher average royalty rate.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $70.6 million for the six months ended June 30, 2023 compared to $67.6 million for the prior year period constituting 25.7% and 19.8% of net sales, respectively.

Selling, general and administrative expenses increased as a result of higher professional services and employee related expenses.

Interest Expense

Interest expense was $4.3 million for the six months ended June 30, 2023, as compared to $4.5 million in the prior year period.

During the six months ended June 30, 2023, we incurred interest expense of $3.2 million related to our 2021 BSP Term Loan, $0.4 million related to our revolving credit facility and $0.7 million related to other borrowing costs.

During the six months ended June 30, 2022, we incurred interest expense of $4.0 million related to our 2021 BSP Term Loan and $0.5 million related to our revolving credit facility.

Provision for (Benefit From) Income Taxes

Our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $0.1 million, or an effective tax rate of 9.9%, for the six months ended June 30, 2023.

During the comparable period in 2022, our income tax expense was $1.8 million, or an effective tax rate of 7.3%.

The effective tax rate increased primarily due to the expectation of taxes owed in higher tax jurisdictions.

Seasonality and Backlog

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Liquidity and Capital Resources

As of March 31, 2023, we had working capital (inclusive of cash, cash equivalents and restricted cash) of $77.8 million, compared to $97.4 million as of December 31, 2022, representing a decrease in working capital of $19.6 million during the three-month period ended March 31, 2023.

The decrease in working capital is primarily attributable to the $38.7 million of principal payments made during the quarter related to our 2021 BSP Term Loan.

$23.1 million was related to the ECF Sweep provision and was classified as short-term debt and $15.6 million was related to the principal payments on the non-current portion of the 2021 BSP Term Loan.

Operating activities used net cash of $4.1 million during the three months ended March 31, 2023, as compared to net cash used of $2.7 million in the prior year period.

The increase in net cash used in operating activities year-over-year is primarily due to a higher net loss.

As of June 30, 2023, we had working capital (inclusive of cash, cash equivalents and restricted cash) of $65.5 million, compared to $97.4 million as of December 31, 2022, representing a decrease in working capital of $31.9 million during the six-month period ended June 30, 2023.

The decrease in working capital is primarily attributable to the $30.2 million principal payment made during the quarter related to our 2021 BSP Term Loan.

Operating activities provided net cash of $20.8 million during the six months ended June 30, 2023, as compared to net cash provided of $36.5 million in the prior year period.

The decrease in net cash provided by operating activities year-over-year is primarily due to lower overall sales and higher working capital usage, partially offset by higher non-cash charges related to the valuation adjustment for our preferred stock derivative liability.

Other than open purchase orders issued in the normal course of business related to shipped product, we have no obligations to purchase inventory from our manufacturers.

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As part of our strategy to develop and market new products, we have entered into various character and product licenses with royalties/obligations generally ranging from 1% to 21% payable on net sales of such products.

As of March 31, 2023, these agreements required future aggregate minimum royalty guarantees of $67.8 million exclusive of $5.8 million in advances already paid.

As of June 30, 2023, these agreements required future aggregate minimum royalty guarantees of $70.8 million exclusive of $3.9 million in advances already paid.

Of this $70.8 million future minimum royalty guarantee, $41.5 million is due over the next twelve months.

Investing activities used net cash of $3.5 million and $1.8 million for the three months ended March 31, 2023 and 2022, respectively, and consisted primarily of cash paid for the purchase of molds and tooling used in the manufacture of our products.

Financing activities used net cash of $39.9 million and $0.9 million for the three months ended March 31, 2023 and 2022, respectively.

The cash used in financing activities during the three months ended March 31, 2023, primarily consists of the repayment of our 2021 BSP Term Loan of $38.7 million and the repurchase of common stock for employee tax withholding of $1.2 million.

The cash used in financing activities during the three months ended March 31, 2022, primarily consists of the repayment of our 2021 BSP Term Loan of $0.2 million and the repurchase of common stock for employee tax withholding of $0.6 million.

As of March 31, 2023, we have $30.2 million of outstanding indebtedness under our first-lien secured term loan (the “2021 BSP Term Loan Agreement”) and we have no outstanding indebtedness under our senior secured revolving credit facility (the “JPMorgan ABL Facility”), aside from utilizing $17.2 million in letters of credit.

The First Lien Term Loan Facility Credit Agreement (the “2021 BSP Term Loan Agreement”) and the Credit Agreement with JPMorgan Chase Bank, N.A., as agent and lender (the “JPMorgan ABL Credit Agreement”) each contain negative covenants that, subject to certain exceptions, limit our ability and our subsidiaries ability to, among other things, incur additional indebtedness, make restricted payments, pledge our assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates.

The terms of the 2021 BSP Term Loan Agreement also require us to maintain a Net Leverage Ratio of 4:00x, with step-downs occurring each fiscal year starting with the quarter ending March 31, 2022 through the quarter ending September 30, 2024 in which we are required to maintain a Net Leverage Ratio of 3:00x.

On April 26, 2022, we entered into a First Amendment to the 2021 BSP Term Loan Agreement, to provide, among other things, that we must maintain Qualified Cash of at least:

(a) at all times after the Closing Date and prior to the First Amendment Effective Date, $20.0 million;

(b) at all times during the period commencing on the First Amendment Effective Date through and including June 30, 2022, $15.0 million;

and (c) at all times on and after July 1, 2022, through September 30, 2022, $17.5 million;

provided, however, that if the Total Net Leverage Ratio exceeded 1.75:1.00 as of the last day of the most recently ended month for which financial statements were required to have been delivered, then the amount set forth in this clause shall be increased to $20.0 million.

Notwithstanding the foregoing, the Applicable Minimum Cash Amount shall be reduced by $1.0 million for every $5.0 million principal prepayment or repayment of the Term Loans following the First Amendment Effective Date;

provided however, that, the Applicable Minimum Cash Amount shall in no event be reduced below $15.0 million.

On June 27, 2022, as permitted by the terms within the 2021 BSP Term Loan Agreement, we made a voluntary fee-free $10.0 million prepayment towards the outstanding principal amount of the 2021 BSP Term Loan.

On September 28, 2022, as permitted by the terms within the 2021 BSP Term Loan Agreement, we made a voluntary $17.5 million prepayment towards the outstanding principal amount of the 2021 BSP Term Loan and incurred a $0.5 million prepayment penalty.

On January 3, 2023, as permitted by the terms within the 2021 BSP Term Loan Agreement, we made a voluntary $15.0 million prepayment towards the outstanding principal amount of the 2021 BSP Term Loan and incurred a $0.2 million prepayment penalty.

On March 3, 2023, as required by the terms within the 2021 BSP Term Loan Agreement under the Excess Cash Flow (“ECF”) Sweep provision, we made a mandatory $23.1 million payment towards the outstanding principal amount of the 2021 BSP Term Loan.

The 2021 BSP Term Loan Agreement and the JPMorgan ABL Agreement contain events of default that are customary for a facility of this nature, including (subject in certain cases to grace periods and thresholds) nonpayment of principal, nonpayment of interest, fees or other amounts, material inaccuracy of representations and warranties, violation of covenants, cross-default to certain other existing indebtedness, bankruptcy or insolvency events, certain judgment defaults and a change of control as specified in each Agreement.

If an event of default occurs under either Agreement, the maturity of the amounts owed under the 2021 BSP Term Loan Agreement and the JPMorgan ABL Agreement may be accelerated.

We were in compliance with the financial covenants under the 2021 BSP Term Loan Agreement and the JPMorgan ABL Agreement as of March 31, 2023.

Investing activities used net cash of $4.9 million and $5.3 million for the six months ended June 30, 2023 and 2022, respectively, and consisted primarily of cash paid for the purchase of molds and tooling used in the manufacture of our products.

Financing activities used net cash of $70.4 million and $11.5 million for the six months ended June 30, 2023 and 2022, respectively.

The cash used in financing activities during the six months ended June 30, 2023, primarily consists of the repayment of our 2021 BSP Term Loan of $69.2 million and the repurchase of common stock for employee tax withholding of $1.2 million.

The cash used in financing activities during the six months ended June 30, 2022, primarily consists of the repayment of our 2021 BSP Term Loan of $10.9 million, and the repurchase of common stock for employee tax withholding of $0.6 million.

As of June 30, 2023, we have no outstanding indebtedness under our first-lien secured term loan (the “2021 BSP Term Loan Agreement”) and under our senior secured revolving credit facility (the “JPMorgan ABL Facility”), aside from utilizing $9.3 million in letters of credit.

See Note 5 – Debt and Note 6 – Credit Facilities for additional information pertaining to our Debt and Credit Facilities.

As of March 31, 2023 and December 31, 2022, we held cash and cash equivalents, including restricted cash, of $38.3 million and $85.5 million, respectively.

Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $33.9 million and $39.4 million as of March 31, 2023 and December 31, 2022, respectively.

As of June 30, 2023 and December 31, 2022, we held cash and cash equivalents, including restricted cash, of $32.4 million and $85.5 million, respectively.

Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $25.8 million and $39.4 million as of June 30, 2023 and December 31, 2022, respectively.

The cash and cash equivalents, including restricted cash balances in our foreign subsidiaries have either been fully taxed in the U.S.

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tax should such amounts be repatriated in the form of dividends or deemed distributions.

Any such repatriation may result in foreign withholding taxes, which we expect would not be significant as of March 31, 2023.

Any such repatriation may result in foreign withholding taxes, which we expect would not be significant as of June 30, 2023.

Our primary sources of working capital are cash flows from operations and borrowings under our JPMorgan ABL Facility (see Note 6 – Credit Facilities).

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Changes in this area could have a material adverse impact on our liquidity.

As of March 31, 2023 off-balance sheet arrangements include letters of credit issued by JPMorgan of $17.2 million.

As of June 30, 2023 off-balance sheet arrangements include letters of credit issued by JPMorgan of $9.3 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements